M a r k e t i n g S t r a t e g y P a p e r 1 f o r G r e e n B e a n

Andrew MullinsManagement 301Entrepreneurship and Small Business Development November 6th 2014Green Bean is a specialty Café that is eco friendly & sells 100% organic

products.

Table Of Contents

Market Analysis…………………………………………………………………………...3 Core Customer…………………………………………………………………………….3 Products and Services……………………………………………………………………..3 Pricing Strategy……………………………………………………………………………4Promotional Mix…………………………………………………………………………..6Consumer Decision Making Process……………………………………………………...8Funding…………………………………………………………………………………....8Financials………………………………………………………………………………….9Works Cited……………………………………………………………………………...10

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Market Analysis

The following data has been collected from research conducted by the Small Business Development Center Network (SBDC Net, 2012), and the National Coffee Association Annual Drinking Trends Survey (National Coffee Association USA). The market for higher quality gourmet coffee and the establishment of specialty cafes is increasing each year as consumers become more educated about espresso based drinks and the way they are made. This has also led to consumers establishing preferences for where they want their coffee. While 70 percent of sales are generated from the top 50 coffee chain operators, such as Starbucks and Dunkin Donuts, it is estimated that the market for independent cafes are growing at about 10% annually. There are about 20,000 coffee shops businesses in the U.S with a combined $10 billion dollars in revenue. Compare this to just a little over 10 years ago when there were only 11,250 locations averaging $550,000 in annual sales for a total of $6.12 billion dollars. It is also estimated that, “The retail value of the U.S. coffee market is 30-32 billion dollars (Specialty Coffee Association of America).” Operating income represents about, “2.5 percent of net sales and a gross margin at about 85%... each worker is responsible for garnering about $50,000 in annual sales (SBDCNet, 2012).” In addition, gross margin of the typical coffee shop is about 85%.

Core Customer

Seventy-seven percent of U.S. adults drink coffee; of these 59% say they drink it everyday. A typical customer at a coffee shop is 22% more likely to be aged 18-24, while 65% are more likely to have an annual household income of 100k+. Also 70% are more likely to possess a post-graduate degree. The age of the average coffee drinker is 43.Three demographic criteria that exist for my core customer include age, income and level of education. All three of these are important to my enterprise since I would be classified as a specialty coffee shop. I would be looking to serve middle-aged people ages 35-54, as statistics show these are the largest group of coffee drinkers. They are also more likely to stop for coffee because they are on their morning commute to work. I would also be focusing on younger professionals who make about $60,000 a year on average, since this demographic is more likely to drink coffee that isn’t made at home since they have more disposable income compared to people averaging less money a year. The reason why all of these demographic criteria matter is because one depends on the other. If any element doesn’t exist it sort of creates a ripple effect. How much you make usually a year is usually dependent on two factors, your age and your level of education.

Products and services

The products and services that the Green Bean will offer is high quality organically sourced caffeinated beverages along with locally sourced organic food options. Our goal will also be to provide exceptional customer service where we look to create and maintain positive relationships with all of our customers and educate them on the benefits of establishing healthier eating habits and environmental friendliness.

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This will exploit a new trend in the restaurant industry, and in the coffee consumption industry, of people who are looking for healthier options when eating out. Since the location of the Green Bean has to deal with competition from two well established cafes in the area, Starbucks and Dunkin Donuts, we will be looking to provide products that differentiate themselves from these two by serving certified organic products including organic coffee beans, something these two chains do not currently offer. We will also look to include food items that are fresh, organic and even gluten free. No other chain, or coffee shop in the area sells products with standards this high. We also will certainly look to provide customer service that goes way beyond the impersonal service Dunkin Donuts offers, and even a step above Starbucks, by handing out samples throughout the day and educating our customers by making them aware of the benefits of organics and being eco conscious.

Pricing Strategy

Some pricing strategies revolve around psychological pricing which sets the price in a way that will somehow alter its perception by customers. Prestige pricing, odd pricing, reference pricing and price lining are all types of this strategy. For all of these pricing strategies you are looking at a few advantages which include stabilizing the market place, establishing your company’s position in the market place, build an image for your business or product and develop a reputation for being fair with suppliers and customers.

In a prestige pricing strategy a good or service’s quality is difficult to determine solely on inspection or for products that costumers have relatively little information on. The advantages of this are you can stabilize prices in the market because you may either set the price ceiling or the price floor for a particular item throughout the market. You can also evoke quality by pricing it high since most people correlate quality with price. Another advantage would be you would set your product’s position in the market. Disadvantages to this price strategy could backfire though because while people might not mind paying more for quality, they will certainly become much less likely to buy it if its too expensive so its good to find the balance. Another disadvantage is of this price strategy is it is limited to a certain few goods, especially mot commodities. Just think of how difficult it would be to sell expensive water because it is “really good water.” Most people will just buy a much cheaper bottle of water that is still considered to be high quality. Finally, with this pricing strategy it doesn’t allow you to ever run sales on your good. If you were pricing your good high because you want people to know it is high quality, putting it on sale would just contradict your efforts.

Odd pricing is another strategy that helps the seller to sell more goods because it tricks the customer into thinking they are paying less for the product in hopes that they will buy the initial good, and many more after. Ten dollars seems expensive, but $9.99? Well, $9.99 is cheaper so that what I want to pay. On the other hand you can use the opposite effect called even pricing, where the advantage of this is to make the customer think the price is good as is and there is no reason to try to negotiate for a lower price. So a jeweler would price a ring at $1800.00 because to the buyer this price seems like the bottom line,

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if the price were $1,799.99 the person may try to talk you down. Either way this strategy allows for your customers to think your fair by offering the best price possible for the good. Some disadvantages of this pricing strategy includes you might confuse people since some people actually like seeing clean even numbers like $10.00, $15.00, etc. and also some people may realize that you are intentionally putting an odd price for a product because you are trying to push the product, so they may not like the feeling of being setup. Finally this pricing strategy may cause a loss in productivity because when they go to pay for the good there has to be change being exchanged and this will increase check out times which may lead to some customers getting angry from waiting so they abandon their purchases.

The next strategy called reference pricing can be just as harmful as it can be hurtful to the product. A major disadvantage of this strategy is that it can really only be done for commodity goods, and even more specifically it can only be done with commodity goods that customers actually have an idea of what the price should be. The main disadvantage of this pricing strategy is if not done correctly you will lose all your customers because they will go somewhere else to buy it for cheaper. The advantages though are you can potentially capture market share because more customers will come to you knowing that you have a price that is cheaper than anywhere else they can go to get the same exact product. This strategy will also help to stabilize prices in the market because it will set a general price for the good that everyone should be selling it at. This strategy will also help you to establish a better relationship with your supplier because you will be moving more of their product, so they might be more likely to give you a cheaper price since you are buying so much of the good.

Finally, price lining is a tool you can use when you are looking to distinguish and highlight certain features. For example if you price 3 ties at $10.00, $20.00 and $30.00 dollars you sort of set up values in your customers head. So may buy the expensive one because they consider it to be the highest quality, while others will refuse to buy the $10.00 tie because they will think its not better than paying a little more and getting the $20.00 tie. The advantages of this strategy is it will appeal to every consumer, the ones looking for quality, the ones looking for value and the ones looking for the cheapest deal. It will allow you to upsell so that customers spend more as well. The disadvantages of this strategy though is people may not think you sell only the highest quality products and therefore you may not be their go to choice for whatever goods you are selling. Also this type of strategy narrows what a customer is paying attention to since they are only focusing in on price and no other factors. You can also be stuck with a lot of the high-end merchandise if a recession was too hit because people would come in and only buy the good with the cheapest price, so it could potentially leave you sitting on some inventory.

The pricing strategy that I will use for my business will be price lining and creativity in pricing by using price to highlight product advantages. This would be the best strategy for my business because it is the strategy that is used in every other coffee shop across America. It also makes sense to do it this way as well since drinks will come in small, medium, and large therefore the increase in price will correlate with an increase in amount of coffee. I will also use price to highlight product advantages such as charging

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an extra 50 cents for an extra shot of espresso, or charging extra putting protein in a smoothie. This way, customers will link paying more with getting more value and being healthier.

Promotional Mix

Advertising has the ability to reach large groups of people depending on the demographic you are aiming for. The great thing about advertising is there are so many different media sources to get your message out there. You can chose from print, broadcast, and outdoor media. You are also able to customize your message by using specific sounds or colors to attract attention. The disadvantages to advertising however is it has really slow feedback so it may be awhile before you can tell if your approach worked. Also advertising usually aims to appeal to reach the most people possible and it can get pretty costly to produce the advertisement as well. Also it is quite difficult to cut through the clutter of the hundreds maybe even thousands of advertisements people see and hear everyday. The final disadvantage would be that advertisements could be difficult to create a personalized message depending on the medium you chose to advertise with. The various methods will be discussed below. They include the newspaper, television, radio, yellow pages, the Internet and social media.

Newspapers are great locally. They cover local markets really well and you can use color and insert coupons on a page. Also newspapers are very timely and flexible since they are distributed every day. On the other hand this can be a disadvantage because they have such a short life that your true value really only comes the actual day they are printed. Also newspapers are declining in popularity since e-readers, tablets and cell phones are replacing them. Also any photos you do use will have relatively poor quality.

Television is considered to be one of the greatest venues for advertising because you have sound, picture and motion. It is also able to reach a large audience. The downside to this however is the high cost associate with this form and also the ability for people to mute the commercials or not record commercials while they are using TiVo. Also since multiple commercials play at once, people may forget about your ad in all of the other noise.

Radio reaches specific audiences well, and it doesn’t cost a lot to do this. Also the lead-time is short so this allows for ads to be developed quickly. The bad part of the radio however is people are often too distracted to be paying attention to the radio when they are driving and you are also limited in how long you can reach them since most people only listen to the radio when they are in there cars. This means there is intense competition to get the best time slots, which are considered to be when people are commuting.

Yellow pages work well because if a customer is taking the time to go through one that means they are serious about making a purchase from a seller. It is also relatively inexpensive to be advertised in the yellow pages. The ad’s effectiveness will also be easy to measure because most people will tell you that they are calling about the ad placed in

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the yellow pages. The downside to this though is that your ad will be placed right next to ads from all of your competition, so if your ad is small it will get overlooked.

The Internet provides good selectivity of your target market and it is relatively inexpensive. There could be an uncertainty though to how many people are actually seeing your advertisement on the web though and also people usually react negatively to ads on the computer. On the other hand social media is great because it targets large audiences but with a specific, sometimes personalized message. There is also less space limitations like in other forms of media. Unfortunately social media usually has high relative costs and most mailing lists are costly and ineffective not to mention most advertisements will be seen as junk mail.

Personal selling is great because it builds personal relationships with the customers during their private presentations. This type of selling looks to accomplish three things and that is identifying customer needs, match those needs with your products, and show the customer the match between their need and your product. The disadvantage to this type of selling is that is costs a lot of money compared to other forms of selling since it is labor intensive. Also one bad salesman’s reputation can ruin it for everyone else out there. People will perceive you to be a bad salesman as well. Some people also feel uncomfortable because they feel they cant say no since they are being pressured into buying it by the salesman.

Public relations are great because they look to establish bonds with the community for years to come. The purpose is to build goodwill with all o the stakeholders in your community and also get to know your customers well, and allow for them to do the same. This is usually always done for publicity so there is never usually a cost associated with it. There are also many different formats to PR including newsletters, bulletins, public speaking and lobbying. The biggest disadvantage here will be depending on how your portray your company during PR you can make your sales suffer depending on what your customers see, hear and think about you during the PR event.

Finally, sales promotions can work great. These include in store displays, free samples, contests, trades shows and the distribution of coupons. A disadvantage of this would be using too many promotions to the point where your customer will think they should only buy it if they’re getting a good deal on it. They may just continue to endlessly wait for it to go on sale.

The promotions and media that would target my customers best are public relations and sales promotions. It would be good to go out into the community and get to gain exposure especially sine this is a small business and there is little to know room for an advertising budget. This will allow is to recruit potential customers while also giving back to the community, which is a big part of our core values as a company. Another strategy I would use would be sales promotions because after 10 cups of coffee, who wouldn’t like to get one for free? Promotions work great especially when it comes to keeping loyal customers.

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Consumer Decision Making Process

As a small business owner it is important to understand what’s going on in the mind of your customer because it serves as an advantage that will allow you to know how to better target potential buyers. It is vital to realize that, “Their beliefs, attitudes, values, and motives, as well as their perception of your products, are critical to your success(Hatten). ” The five steps include of the consumer decision making process include: Problem recognition, information search, an evaluation of alternatives, the actual purchase, and post purchase evaluation. A customer rarely ever buys a product just to buy it, usually it is because they have a problem and need to find a solution. So the first step of recognizing a problem would be the customer realizing they are either tired and need a boost, or hungry and need some energy. Here the “Current and desired state of affairs (Hatten)” differ since most people who are hungry don’t wish to be any longer, and those feeling sluggish, want to be energized. So this would lead to them doing an information search of how to best solve this problem. Here they would think back to things such as advertisements or friends and family, who can help them to decide how to satisfy their needs. They may think about that stores they pass on their way to work, or remember about a place their friends or family told them about. Once they have done this information search, and have established a list of places to go where they can satisfy their needs, they will do an evaluation of them. So a customer may think I want to go to Starbucks, but it may be too busy, or I want to go to Dunkin Donuts but I want something healthier. Basically you enter the consumer’s decision making process here as an “evoked set” which is the group of brands that come to the customer’s mind when they are thinking about a type of product. This leads to a purchase, which is affected by many hidden factors that can change this decision. For example, if a customer had a friend that came to the Green Bean and had a positive experience, they would be much more likely to make a purchase at the Green Bean themselves. The last step in the consumer decision-making process involves the evaluation of the overall purchase. After a purchase is made, a customer will usually go through some form of cognitive dissonance where they look to verify they have made the right choice. It is very important to realize this is normal and the best way to treat this internal conflict a customer has is to ensure them that they have made the right choice in choosing you to satisfy their original problem. One way the Green Bean can keep this feeling down to a minimum would be creating a program where if your drink isn’t made correctly, your next beverage is free.

Funding

The three main types of SBA loans are “The Basic 7a Loan Program, CDC Loan Program and the Microloan Program (U.S. Small Business Association ).” The basic 7a are fitting for eligible borrowers looking too start, acquire or expand a small business. This is the most basic of the three and is the most commonly used. The next type of SBA loans that target small businesses are, the CDC Program, which provides growing businesses with

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more long-term fixed rate financing. CDC specializes in major fixed assets, such as land and building. The last type is the Microloan Program. It differentiates from the previous two because it offers very small loans to start up new small businesses. The SBA Loan that would be most ideal for Green Bean would entail a basic 7a loan of $75,000. Payments would be monthly and interest would be around 3 percent, as it the normal fee for loans with maturities greater than one year (Market Watch). The collateral, which can be used to secure the loan, will be the asset of Green Bean. The $25,000 loan from friends and family will be paid back as well with interest. Since, it is a loan from loved ones, it will be written down, signed and notarized. The promissory note will state the amount of the loan, the duration of the loan and the interest rate agreed upon. Considering the amount of the loan, it will be repaid in 3 years at an interest rate of 2.5 percent. In comparison to other personal loans, the interest is quite low, however, since the lender is comprised of loved ones, the interest rate is negotiable. Investors will also be paid with interest versus having a stake in the company. The loan of $50,000 from investors would be paid over a 5-year time span at a rate of around 7 percent.

Financials

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Works CitedHatten, T. S. Small Business Management Entrepreneurship and Beyond (Fifth Edition ed.).Market Watch. (n.d.). Today's Interest Rates. Retrieved from Market Watch : www.marketwatch.com/tools/pftools/National Coffee Association USA. (n.d.). Market Research Publications Authoratative Coffee Consumption Research. Retrieved from National Coffee Association USA: www.ncausa.org/i4a/pages/index.cfm?pageid=767SBDC Net. (2012). Coffee Shop 2012. Retrieved from sbdcnet.org: www.sbdcnet.org/small-business-research-reports/coffee-shop-2012Specialty Coffee Association of America. (n.d.). Coffee Facts & Statistics. Retrieved from www.scaa.org: www.scaaevent.org/PDF/Press%20Kit/2012/Facts%20and%20Figures.pdfU.S. Small Business Association . (n.d.). SBA Loans . Retrieved from U.S. Small Business Association : www.sba.gov/content/sba-loans

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